[Edaily Reporter Park Sun-Yeop ] Analysis suggests that as the size of single-stock leveraged and inverse exchange-traded funds (ETFs) based on SamsungElectronics(005930)and SK hynix(000660)grows, the “Wag the Dog” phenomenon—in which these ETFs amplify volatility in both their underlying assets and the broader stock market—is intensifying.
Furthermore, the appropriate aggregate total net assets under management (AUM) for single-stock ETFs is estimated at approximately 5.5 trillion won, and if the current high volatility persists, it is projected that it will take about 50 business days to reach this level due to natural declines resulting from volatility erosion.

In a report released on the 21st, Seol Tae-hyun, an analyst at DB Securities, stated, “The ‘Wag the Dog’ phenomenon caused by single-stock leveraged and inverse ETFs tracking SamsungElectronics and SK hynix is amplifying market volatility.” “Wag the Dog” refers to a phenomenon where the price of an underlying asset is influenced by the supply and demand of derivative and leveraged products.
Leveraged products have a structural characteristic that requires them to meet their target exposure levels daily. This is why, when the price of the underlying asset surges or plummets, mechanical rebalancing orders ranging from hundreds of billions to trillions of won can be concentrated during the closing auction.
He explained that during this process, bid-ask spreads widen significantly toward the end of the trading day, and prices move in the opposite direction at the opening of the next trading day, thereby increasing volatility risks for both the underlying assets and the market as a whole.
He analyzed that while leveraged ETFs tracking individual stocks are also managed in major overseas financial markets, the risk of liquidity distortion is more pronounced in the domestic stock market, where retail investors account for a high proportion of trading volume and supply and demand are concentrated on specific large-cap semiconductor stocks.
A comparison of intraday trading data for SamsungElectronics and SK hynix before and after the listing of single-stock ETFs also confirmed changes in end-of-day supply and demand. On days when stock prices fluctuated by more than 10% prior to the ETF listing, the share of trading volume in the simultaneous auction at market close averaged 6.6% for SK hynix and 5.3% for SamsungElectronics.
Since last June, when ETF listings and net asset inflows began in earnest, these proportions rose to 9.1% for SK hynix and 8.9% for SamsungElectronics. The peak values were 13.8% and 12.5%, respectively.
Researcher Seol noted that, particularly in the case of SK hynix—where the order book depth for the underlying asset is relatively shallow—the market appeared to reach its liquidity absorption limit when ETF rebalancing volumes were released all at once during periods of high volatility.
He calculated the appropriate AUM for single-stock ETFs to prevent the “wag-the-dog” phenomenon by applying factors such as the supply-and-demand safety threshold at the closing auction, the average daily trading volume of the underlying asset, the proportion of trading volume in the closing auction, and daily volatility.
Since their ETF listings, the average daily trading volume for SK hynix has been 14.3 trillion won, while that for SamsungElectronics has been 10.3 trillion won. Applying a 20% supply-demand safety threshold, a 9% share of the closing simultaneous auction trading volume, and a 4% daily volatility rate, the appropriate combined AUM for single-stock leveraged and inverse ETFs was calculated to be approximately 5.5 trillion won.
It was estimated that if the current high-volatility market conditions persist, it would take approximately 50 business days for the AUM of single-stock ETFs to naturally decline to the appropriate upper limit due to volatility erosion—a characteristic of leveraged products.
Researcher Seol predicted that, amid a trend toward strengthening entry requirements and operational regulations—such as mandatory pre-investment education, increased minimum deposit requirements, and restrictions on margin trading—the impact of the “Wag the Dog” phenomenon would also ease over time if additional inflows of new capital remain limited.